How to get started with a generational wealth plan

26 Sep 2018 | Back to Blog

What’s your ‘why’? We get a different answer every time we ask this question, yet the responses are all very similar at their core. The ‘why’ that motivates our clients’ to build wealth is usually founded in building a legacy for themselves and passing their wealth on to the people and entities that matter most to them, in the most effective way. Conversations about wealth planning tend to be, in large part, conversations about family, with today’s definition of family being far more complicated than ever before.

The complex nature of today’s family in the modern world makes wealth planning for successive generations even more important.

Whether you’re an investor with a sweeping estate, a middle-income family shoring up your retirement, or an entrep with a business that will outlive you, the considerations are fundamentally the same. The key to multigenerational planning is establishing a family roadmap early on. It should be rooted in your family’s goals and should ensure you remain in control of your finances, while your family’s aspirations are met. Sound easy enough? Worldwide data shows that it’s not so simple.

Independent studies show that while 90% of wealth creators intend to pass on wealth to the next generation, only about 20% in one study, and less than 50% in the other have actually taken steps to make it happen. The challenge seems to be a failure to act. The good news is that the research went on to show that those who worked with a wealth manager on a comprehensive plan were far more likely to have a multigenerational plan, with 65% further along in reaching their goals.

It may seem like there are many good reasons to delay estate and succession planning. The truth is, once you have a dependent, it is among the first things you should do to successfully build and maintain your wealth. Keep in mind all the ‘whys’ that are important to you and start with:

  1. Appreciating the assets you have now: If you have a home, a business, or bank, investment or retirement accounts, company stocks, or even antiques and jewellery, you have assets, know their value. A Merrill Lynch study showed that for more than two-thirds of families, family wealth fails to outlast the generation beyond the one that created it. Partly because of unrealistic notions about value and a lack of sustainable spending and growth strategies.
  2. Good insurance and an up-to-date will: Make sure you have suitable insurance for your assets and yourself. The reality is sickness and death are expensive, and insurance helps prevent them from eating away at an estate. Having a current will removes ambiguity about how wealth is distributed and even used.
  3. Conversations: Legacy planning requires conversations with your wealth advisor and with your family. Define your family’s goals and values, and be open with each other. Some of these conversations will inevitably be tough, but at the end you get a plan that feels more equitable, detailed, predictable, and aligned with your legacy goals.
  4. Financial assets suited to today and many tomorrows: A detailed outline of your goals will help you detail your investment plan. Remember all the assets you assessed at step one? Ask yourself (and your advisors) if they are suited to your legacy goals. Now you are looking at short-, medium- and long-term goals in a whole different light. You’ll benefit from rebalancing your assets so they work for you and your family over those time horizons.
  5. Timing it right: With longer life spans, wealth is often passed to the next generation in their 50s and 60s via traditional succession plans, well after they have hit key milestones in their lives. Modern generational wealth plans should account for when and how distribution should happen. For many families it is key to provide tertiary education support for children, so they don’t get bogged down with student loans. For some it means handing over the family business early. And for others it’s including children on real estate titles or accounts so they can leverage assets to achieve other goals.
  6. Financial advice for you and your family: Develop a healthy family wealth culture by including younger generations in wealth management meetings. Empower them with an understanding of the difference between money and wealth. Develop thoughtful, charitable and sustainable spending and investing habits. Foster a healthy attitude towards wealth, and a drive to achieve the goals you have worked together to achieve. Your wealth legacy should defy the odds and make it to the third generation and beyond.


*Sources: Independent studies by JP Morgan and Bank of America’s U.S. Trust